Lacklustre UK retail sales leave pound soft

UK retail sales data beat forecasts yesterday, with growth in spending slowing less than economists had expected, but sales growth remained weak overall and markets judged that the economic outlook was still gloomy. The pound softened against the euro and US dollar, but was able to make respectable gains versus the commodity correlated currencies.

GBP/EUR starts today at €1.0975, while GBP/USD has made early gains to reach US$1.2883. GBP/AUD is at AU$1.6328, GBP/NZD at NZ$1.7664, and GBP/CAD at C$1.6320.

A lack of UK data today could leave the pound soft, but will this afternoon’s US consumer confidence figures create volatility for GBP/EUR and GBP/USD?

What’s been happening?

The pound ended the day on mixed form yesterday, with markets largely unimpressed by the latest UK retail sales data.

Month-on-month sales growth slowed to 0.3% in July, with June’s growth slashed from 0.6% to 0.3%, while year-on-year sales growth weakened to 1.3% instead of dropping from a downwardly-revised 2.8% to 1.4% as expected.

Rising food prices were entirely responsible for the increase in sales, with all other categories making up the data showing a decline in transactions; a disconcerting sign for the UK economy going forwards.

However, GBP/EUR was able to record strong gains thanks to the release of minutes from the European Central Bank’s (ECB) July monetary policy meeting.

The accounts showed that policymakers were concerned that euro exchange rates were too strong, which could weigh on growth and trade.

GBP/USD was able to hold around opening levels, although it displayed signs of weakness, even though the latest meeting minutes from the Federal Open Market Committee (FOMC) showed that policymakers had been divided in July over the strength of inflation in the US economy.

What’s coming up?

There is no UK data set for release today, leaving the pound to react to developments in the Eurozone and the US.

However, the Eurozone data calendar doesn’t have a huge amount to offer, with only low-impact German producer price data for July and Eurozone current account and construction output figures for June set for release.

The US will publish the preliminary results of the latest University of Michigan confidence survey for August. A rise in confidence could help ease fears of weakening inflation – optimistic consumers tend to spend more money.

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